US deficit to soar towards $1.6tn

The US budget deficit will soar to almost $1.6 trillion (£978bn) this year, the highest on record, both the White House and Congress have warned.

Fuelled by President Obama's $787bn stimulus package and reduced tax revenues due to the recession, it compares with a $455bn deficit in 2008.

The White House says the deficit will grow further, predicting it will hit a cumulative $9tn from 2010-2019.

However, it continues to expect the US economy to start to recover this year.

The White House expects US unemployment to pass 10% this year, before slowly declining in 2010. The most recent official figures showed the rate at 9.4% in July.

'Dire situation'

The latest deficit predictions have come from the White House and the non-partisan Congressional Budget Office (CBO).

The alarm bells on our nation's fiscal condition have now become a siren

Senate Republican minority leader Mitch McConnell

"Overall, it underscores the dire fiscal situation that we inherited, and the need for serious steps to put our nation back on a sustainable fiscal path," the White House's Office of Management and Budget director Peter Orszag said.

Christina Romer, one of the president's economic advisers, said the recession "was simply worse" than first predicted.

She said the White House now estimated that the economy will contract by 2.8% in 2009, more than double when it predicted earlier this year.

It now expects growth of 2% in 2010, down from its previous prediction of 3.2%, but with economic expansion recovering to 3.6% in 2011.

'Out of control'

Republicans said the latest deficit figures were a serious concern.

"The alarm bells on our nation's fiscal condition have now become a siren," said Senate Republican minority leader Mitch McConnell.

"If anyone has any doubts that this burden on future generations is unsustainable, they're gone - spending, borrowing and debt are out of control."

Analysts said the latest deficit figures increased the likelihood of US tax rises once it is confirmed that the country has exited recession.

The CBO said such a move would be required.

"Putting the nation on a sustainable fiscal course will require some combination of lower spending and higher revenues than the amounts now projected," it said.

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